The latest Anti-Money Laundering (AML) annual report from the Solicitors Regulation Authority (SRA) has been released, detailing the regulator’s stance and approach to AML regulation for law firms. In it, the SRA warns that it is increasing its focus to “ensure that all solicitors understand and meet the obligations of the financial sanction regime.”
Over the past 12 months the SRA have completed 177 AML inspections of law firms and performed 73 desk-based reviews. Between the SRA and the Solicitors Disciplinary Tribunal (SDT) it has levied fines totally £137,402, suspended one individual and placed controls on employment on another and submitted 24 suspicious activity reports to the National Crime Agency relating to assets totalling more than £75m.
Just 1 in 3 (30%) of firms inspected were fully compliant, with just over half (51%) partially compliant. 19% were non-compliant resulting in corrective, and in some cases, enforcements action.
The report identifies a number of key issues that law firms continue to fall foul of. Proper AML policies and procedures, source of funds checks and the failure to carry out a robust risk assessment on the client and/or matter are the top three reasons for reported breaches. Another area of non-compliance is the firm-wide risk assessment, with the SRA suggesting that their investigations revealed inadequate policies and procedures, and poor staff training. Indeed, according to the report, almost half of firms do not update the AML policies annually, often referring to outdated legislation or government agencies.
An on-going issue remains what it describes as “inadequate identification and verification of clients (both individual and corporate) at the outset,” and suggests it often follows that there is little to no on-going monitoring of the transaction. It also criticises the “tick-box” mentality and systems which allow transactions for move forward without automated “stops” to prevent next steps until an action has been completed, such as completing customer due diligence. And pointed to the use of “off-the-shelf” AML policies which were not tailored to the firm as an area of risk and suggested it will take further action.
The SRA’s fining powers have increased significantly in recent years. IN July 2022 the maximum fine that it could levy increased from £2000 to £25,000 and in June 2023 fixed penalties for “lower-level breaches” can be levied, up to £1500.